What's going on?
General Motors (GM), Toyota, and Fiat Chrysler reported falling US sales last quarter – and according to a report on Wednesday from Swiss investment bank UBS, things may soon get worse in Europe, too.
What does this mean?
At this late stage of an economic growth cycle, consumers typically spend less on big-ticket items and focus on the essentials. Analysts predicted a continued decline in US auto sales: higher interest rates compared to a year ago and no additional tax breaks encourage more people to buy used rather than new vehicles. Still, those who did buy new vehicles last quarter paid around 3% more on average than they did last year, as SUVs and trucks push cars out of American garages (see today’s #chartoftheweek).
It’s not just the US suffering, however. UBS predicts that complying with new European regulations on vehicle emissions – which have already contributed to Germany’s skidding economy – will cost the region’s automakers a combined $8 billion of profit in the next two years (tweet this).
Why should I care?
The bigger picture: Automakers are making bold moves.
Toyota followed in Tesla’s tire tracks on Wednesday: it’s allowing rivals free access to its hybrid electric vehicle patents until 2031. This may help maintain Toyota as a force in the electric race even if others take pole position – and come 2031, licensing fees could boost the company’s profits. France’s Peugeot, meanwhile – which bought GM’s European business two years ago – is returning to North America for the first time since 1991, likely in a bid to mitigate the impact of more punitive European pollution laws.
For markets: Trading lanes may clear.
Stocks rose globally on Wednesday, largely thanks to reports that trade talks between the US and China were nearing an amicable conclusion. That’d be a boon for US auto companies, as it’d lower tariffs on their vehicles entering China. It’d be good for the Europeans, too: they actually produce most of the vehicles shipped to China from America.